Last year, the PRA set out a new approach to the supervision of international banks and clarified how their new branches in the UK will be scrutinised going forward.

For EEA branches, in accordance with the Capital Requirements Directive and Regulation, responsibility for the prudential supervision of the whole firm falls under the home state supervisor (HSS), and not the PRA. This will include supervision of liquidity risk from 1 October 2015, when the Liquidity Coverage Ratio (LCR) Delegated Act is due to apply.

Importantly, if the PRA considers that the EEA branch is important to the financial stability of the UK, it will be able to designate the branch as 'significant', triggering information requirements that would need to be fulfilled by the HSS.

For non-EEA branches the PRA's authorisation applies to the whole firm and is centred on an assessment of three factors:

  • the equivalence of the supervision from the (HSS) of the whole firm to that of the PRA;
  • the branch's UK activities and whether there is any critical economic function (CEF) being undertaken; and
  • the level of assurance the PRA gains from the HSS over resolution.

These new developments have important regulatory reporting implications for both EEA and non-EEA branches. We provide below a summary of current requirements and proposals on this area.

Significance of the branch activities: the branch return

For the PRA to be able to identify which branches can be considered 'significant', new reporting requirements have been introduced for both EEA and non-EEA branches. A data return including different templates will be requested twice-yearly starting 1 July 2015.

The return includes comprehensive information on different activities such as deposits, lending, trade finance, capital markets and investment, payments and settlements and 3rd party services. The data points and firm notes will be as at 30 June and 31 December each year and submission should occur within 30 days of the date to which the information relates.

The detailed requirements can be found in the policy statement PS8/15.

Supervision of liquidity risks and implications for reporting

The existing UK liquidity regime as outlined in BIPRU 12 provides the possibility for foreign banks, in relation to their UK (EEA and non-EEA) branch, to rely on the availability of liquidity resources from elsewhere within the firm by using a Whole-Firm Liquidity Modification (WFLM).

According to the current proposals, as outlined in the consultation paper CP27/14, from 1 October 2015 the PRA will update its existing liquidity regime and revoke BIPRU 12. From this date, the WFLM will cease to exist and firms will no longer be able to rely on these modifications and will not be expected to comply with them.

For EU firms, no formal reporting requirements will apply locally in the UK from 1 October 2015.

For non-EU firms, including non-EEA branches and, on a transitional basis, UK branches of EEA credit institutions that have their head office outside the EU (i.e. Iceland, Liechtenstein and Norway), the following reporting requirements are expected to apply:

  • Submission of the LCR and contractual maturity ladder returns, on a whole-firm basis with monthly frequency and on a single consolidated currency, using the XBRL format (firms may apply for modifications of this requirement on a case-by case basis); and
  • Submission of certain liquidity returns (FSA047 & FSA048, FSA051 and FSA053), in line with the PRA's wider proposals for UK credit institutions and designated investment firms.

The PRA has proposed to give these firms a transition period of six months, starting from 1 October 2015, to prepare the appropriate reporting systems. Firms will need to plan ahead and make sure that any enhancements are robust and enable compliance with the new requirements. Importantly, if LCR reporting requirements apply within the home state, differences between the local and European LCR requirements would need to be understood and addressed early in the process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.